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Robust Market Share to Drive Pinnacle Foods' (PF) Q2 Earnings

Pinnacle Foods Inc.PF is slated to release second-quarter 2018 results on Aug 2. Earnings of this provider of branded food products has outpaced the Zacks Consensus Estimate by an average of 1.1% in the trailing four quarters, registering a beat in three of them. Let's take a peek at what's in store for Pinnacle Foods this time around.

Growth Strategies to Sustain Glow

Pinnacle Foods has been depicting a sturdy in-market performance for a while. In fact, during first quarter of 2018, retail consumption expanded 3.5% along with market share growth of 0.4 points. This marked the company's 16th consecutive period of growth in composite market share. Such strong performance can be attributed to the company's dedicated endeavors to expand portfolio and customer base.

Speaking of growth strategies, Pinnacle Foods frequently engages in buyouts. In this respect, the Boulder Brands acquisition has been yielding and provided the company a new growth platform in refrigerated foods. In 2017, the company gained synergies of $16 million from the Boulder acquisition. Going ahead, management expects to continue to benefit from the residual synergies associated with this acquisition. Additionally, buyouts of the Duncan Hines manufacturing business and Garden Protein have bolstered Pinnacle Foods' business.

Constant innovations also boosts the company's market share. Some noteworthy examples in this regard includes new varieties of the Duncan Hines Decadent, Duncan Hines Perfect Size baking kits, Birds Eye product lines and Vlasic purely pickles. Additionally, to augment brand performance and enhance marketing effectiveness, the company announced its partnership with VaynerMedia.

Undoubtedly, such efforts are likely to aid the company's segments in the upcoming quarterly release. Markedly, the Zacks Consensus Estimates for sales for Birds Eye Frozen (or Frozen) and Duncan Hines Grocery (or Grocery) is pegged at $303 million and $277 million, respectively, depicting an increase of 2.3% and 0.4% from the year-ago quarter's figures. The consensus mark for sales at Boulder Brands is pegged at $99 million. To top it, the Zacks Consensus Estimate for overall net sales is currently pegged at $750 million, reflecting a rise of 0.7% from the year-ago quarter's tally.

Additionally, to boost bottom-line performance, the company has an operational excellence program that focuses on generating productivity savings across the supply chain.

On account of such efforts along with acquisition synergies and benefits from the network optimization program, the company expects productivity for 2018 in the range of 4-4.5% of cost of products sold. Pinnacle Foods is also pursuing other initiatives to boost gross margin, which include improving product mix through innovation and low-margin SKU rationalization as well as increasing the effectiveness of trade promotional spending.

Such robust initiatives to enhance profits enhance optimism for the company's second-quarter results as well. Notably, the consensus mark for earnings for the quarter under review is pegged at 56 cents, which marks an improvement of 5.6% from the year-ago quarter's tally.

Weak Specialty Unit & High Logistics Costs A Worry

Pinnacle Foods has been battling increased costs, primarily stemming from logistics for quite some time. During first-quarter 2018, the company's adjusted gross margin contracted 130 basis points (bps) on account of increased inflation stemming from transportation costs as well as costs related to innovation outsourcing. Apart from Pinnacle Foods, other food companies like United Natural Foods UNFI , McCormick & Company MKC and TreeHouse Foods THS are also grappling with higher transportation costs.

Moreover, the company has been witnessing sluggish net sales in the Specialty segment since six consecutive quarters. In fact, the Zacks Consensus Estimate for sales in this unit for the second quarter is pegged at $75 million that depicts a decline of almost 3.8% from the prior-year quarter's tally.

Nevertheless, Pinnacle Foods is expected to easily tide over the aforementioned hurdles, buoyed by strong market performance and other strategic growth-oriented initiatives. That said, lets see what the Zacks Model unveils regarding the upcoming quarterly release.

Zacks Model

Our proven model shows that Pinnacle Foods is likely to beat estimates this quarter. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

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